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Small businesses to benefit from creation of dedicated Ministry

The creation of a dedicated Ministry for Small Business offers enormous opportunities for this crucial sector of the South African economy. 

Standard Bank estimates that about half of South Africa’s GDP is produced by small business, and that about 70% of private employment is provided through firms with fewer than 50 employees. 


Ravi Govender

“To date, the government has made positive progress toward improving the enabling environment for this sector. This included the simplification of tax requirements and the introduction of various support programmes.  However, poor co-ordination of support has prevented the sector from reaching its full potential as a driver of economic growth and job creation,” says Ravi Govender, Head of Small Enterprises at Standard Bank.

Mr Govender notes that while there are a number of state and NGO providers who offer business development and financing targeted specifically at small businesses, the majority of small business owners do not know how to access them. As a result, large proportions of budgeted funds remain unallocated. 

“The new Ministry presents an opportunity to strengthen strategic focus, reduce fragmentation, bring together government-backed SME funding bodies within a single operating space, and engage much more effectively with the SME sector,” says Mr Govender. 

“In addition, the Small Business Ministry can potentially elevate the profile of the SME sector across government, by identifying and co-ordinating opportunities and support for small businesses across different Ministries’ various activities.”

“It is at a policy level that a Ministry can be most effective - providing cues to be followed by government and by the private sector, including banks This will enable us to offer more clearly defined support to small businesses.”

At an administrative and execution level the Ministry could help to bridge the gap between SMEs and private banks.

“Essentially, at present we have a situation where various bodies are competing for a slice of the ‘small business pie’, when the total pie – or the entire universe of the sector and the opportunities it represents - has not been clearly defined or created. It is necessary as a basic step towards creating a sustainable SME sector that this situation is rectified,” says Mr Govender.

Banks and development finance institutions (DFIs) find it difficult to identify entrepreneurs and newly established SMEs that have viable business plans and the necessary management skills to achieve the objectives set out in their plans.  It is also difficult to identify businesses that demonstrate competitiveness and growth potential.  SMEs report that financial assistance programmes provided by DFIs are administratively complex and largely inaccessible.  Turnaround times tend to be slow, and applicants often receive little feedback and don’t know where to go to access assistance to improve their business plans or funding requests.

Mr Govender believes that improved co-ordination and understanding at government level would address these gaps. Private sector financial institutions will be enabled to better support small business, with efforts being addressed to defined market segments on a competitive basis.

A start could be made on working towards creating a mature sector where structured development of SMEs, and identification and focused support of identified high-flying entrepreneurs, would become possible.

The Ministry could also play an active role in the collection and analysis of the kind of data that will support informed and strategic decision making among business owners and entrepreneurs.

“In the present SME climate the efforts of entrepreneurs are primarily directed at areas where a budding business person has skills or a personal passion that they feel could be transformed into a business. This leads to misalignment and increases the chances for business failure as competition becomes fierce in relatively small pockets of activity, or anticipated markets don’t materialise.”

“We are currently seeing 40% of businesses failing during their first year. With better information to assess the feasibility of business plans, improved coordination of support programmes across the government and NGO sectors, and effective engagement with the financial services sectors, entrepreneurs would be in a much better position to build viable and sustainable business ventures.

“We need to do a lot more to help South African entrepreneurs thrive and create jobs. The Small Business Ministry offers an opportunity to really deliver on government’s vision for SME-led economic rejuvenation and job creation, which would bring enormous benefits to all South Africans,” says Mr Govender.